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SEC starts alternative mutual funds examination

Published 13 August 2014

The US Securities and Exchange Commission (SEC) has reportedly started a broad examination of alternative mutual funds that are offered to small investors.

Sources with the knowledge of matter were quoted by The Wall Street Journal as saying that the agency would examine BlackRock and AQR Capital Management, as well as other smaller firms that earlier did not offer mutual funds.

The regulator aims to gather information about the industry with focus on the liquidity of the funds, their use of leverage to amplify wagers, and the degree of oversight provided by the funds' boards, and will not necessarily deliver enforcement actions, the sources added.

Some of the sources said the regulator has even sent letters to some companies asking to speak with mutual fund board members.

SEC investment company and adviser exams head Jane Jarcho said the agency is planning to examine nearly 30 firms who offered such funds by April, and will decide whether or not to examine additional companies depending on the results.

Also called liquid alternative funds, alternative funds employ hedge-fund-like investment strategies, such as investing in private debt or shorting assets, and command higher fees, and are more riskier than conventional funds, according to Reuters.

BlackRock has reportedly launched seven alternative mutual funds focused at penetrating the retail alternatives market.

BlackRock and AQR Capital Management representatives declined to comment on the report.